Press Room

H & A’s president and CEO, Jason Hickey, shared his expertise regarding Amazon’s HQ2 project in FAZWeek (Frankfurter Allgemeine Woche), a weekly German magazine. Below is the original article in German, as well as, an English version, translated by Google.

Lovers around Amazon (translated by Google)

The online retailer has launched a city competition for its new headquarters. The candidates outdo each other with billions of offers. Is it worth it?

By Winand von Petersdorff and Roland Lindner

The Empire State Building changes color only on special occasions. On October 18, the famous New York skyscraper shown orange. Not as usual to celebrate a sporting event or a holiday, but to bow to Amazon. Orange is the color of the arrow in the online merchant’s logo, and the lighting was meant to bring New York into the most spectacular site competition ever seen in America. Amazon is looking for a home for a new headquarters, the application deadline for the day after the light show at the Empire State Building.

The action in New York is just one example of many. To attract Amazon, American cities seem to be right now every commercial gimmick. Tucson (Arizona) CEO Jeff Bezos sent a giant cactus, the landmark of the region. Birmingham (Alabama) set up gigantic Amazon parcels in the city. The mayor of Kansas City (Missouri) bought 1,000 products on Amazon and gave them positive reviews, in which incidentally, his city came away well. A suburb of Atlanta (Georgia) even promised to create within its borders a new city bearing Amazon’s name and Bezos as mayor. These are the gimmicks used by local politicians to show their citizens that they are not standing idly by the United States’ main settlement project.

The online retailer itself, however, has made it clear in his call a few weeks ago that he is dealing with hard factors and, above all, money. He made a whole series of demands on his future home, to “critical decision factors,” he explained the so-called “incentives”. It means financial incentives, such as tax relief or free land, that he wants from the applicants. The claims seem to be very high, because Amazon even guessed that local governments might have to pass new laws to make a competitive incentive package.

Not only is Amazon’s siting process unusual because of its size, but Seattle’s second headquarters is said to employ 50,000 people with an average annual salary of more than $ 100,000. It is also unusual that Amazon has made its search public, says Jason Hickey, chief consultant Hickey & Associates, which advises companies on site selection. Usually companies were looking discreetly, addressed mayors and utilities would have to sign confidentiality statements. But Amazon is hounding cities and states together, sparking outbidding competition. Similarly, according to Hickey, only the carmaker Toyota, which wants to build a new car factory together with Mazda, is currently practicing it.

The transparent auction is something new, says the consultant. And it seems to work fine. They could not help but bid, mayors and regional politicians would confide in confidence, even if they had no chance, the site expert reports, because the public is watching closely. In addition to New York, almost all major American cities have registered interest, but even more remote regions like Alaska are hopeful. Even the semi-autonomous American territory Puerto Rico and candidates from Mexico are in the race. Overall, Amazon now has 238 offers.

A raging offer has now been laid on the table by the Republican governor of New Jersey, Chris Christie, and immediately made public. Democratic politicians stood by his side. The state and city of Newark offer Amazon a combined $ 7 billion in tax credits and other perks. That would be record level. Only the aircraft manufacturer Boeing had received a slightly larger package from the state of Washington with just under nine billion dollars and thus triggered a lengthy procedure with the World Trade Organization.

But the financial baits are not unusual. In the auto industry, for example, they have long been the order of the day, which German manufacturers have profoundly exploited. When BMW set up a production facility in Spartanburg, South Carolina, in 1994, it had $ 130 million in incentives. Daimler even received services worth almost $ 300 million for its plant in Tuscaloosa, Alabama, which opened three years later. Volkswagen’s production in Chattanooga (Tennessee), which has been in existence since 2011, has so far cost around 800 million dollars in public funds.

Even governors who are campaigning as pure-market propagandists, such as Scott Walker of Wisconsin, are using taxpayers’ money when it comes to recruiting a large corporation. Walker signed a legislative package in mid-September that would allow the northern state to accommodate Foxconn from Taiwan with a tax rebate of $ 3 billion for a new flat panel mill that could initially employ 3,000 people, but eventually reach 13,000.

In 2015, states, cities, and local governments offered around $ 45 billion in subsidies to keep companies off the ground, lure them, or allow them to expand, a study by the Upjohn Institute predicts. That corresponds to at least 30 percent of their tax revenues, says the Zurich economist Ralph Ossa, who has examined the subsidy competition of the US states. Governors are in a classic prisoner’s dilemma. They do not know what efforts the rival governor is making to locate the courted corporate headquarters in their own home country. At the same time, they have good reasons to subsidize corporate settlements – above all because of the positive spillover effects. That’s why they offer incentives, even if they actually know

Amazon obviously knows its game theory. The company has perfected the subsidy optimization system. The rapidly growing group of companies, which opens one distribution center after another, has already claimed a total of $ 1.1 billion from its settlements, according to surveys by the organization “Good Jobs First”. Five years ago, the group even started its own department, which negotiated incentive packages.

But everything has its limits. The subsidy package that Wisconsin’s Governor Walker has put together for Foxconn has met with fierce criticism. Michael Hicks, economics professor from Indiana, opens the bill. According to media reports, Foxconn has promised the employment of 3,000 employees, to whom the group wants to pay an average of $ 54,000 a year in wages. If one extrapolates the subsidies over the promised fifteen years, then the state donates to the enterprise according to Hicks calculations for each of the 3000 workers 66,000 dollars a year. “Wisconsin is actually paying the salaries,” writes Hicks in a newspaper article. The bill will be slightly cheaper for Wisconsin as Foxconn replaces its workforce. The state benefits from these benefits with an unemployment rate of 3.2 percent.

In the state of Washington, Boeing’s hometown, MEPs today are deeply upset that the aircraft manufacturer fired more than 12,000 employees in the state following the $ 8.7 billion job security and expansion package. In New Jersey, there is also opposition to the cross-party project of giving Amazon billions. Because the state is almost broke. Critics complain that escaping tax revenue has damaged Newark’s schools and public transport. Newark wants to score just with the good connection to New York.

Not every city participates in the arms race with public funds. New York, for example, allegedly does not want to give financial support beyond what other companies get. “We are winning on the basis of the talent of our workers and the incredible diversity of industries in this city,” says Mayor Bill de Blasio. The Texan city of San Antonio has even left the race completely because it is not prepared to offer Amazon similar generous incentives as other municipalities. “Blind giving away the farm is not our style,” Mayor Ron Nirenberg wrote in a letter to Jeff Bezos. The Texan even voiced the suspicion that Amazon has already selected its preferred location anyway.